Vietnam’s nascent but rapid digital transformation

VIETNAM maintains its reputation as a major production hub in Southeast Asia by ensuring favorable labor costs and trade agreements. The goal to position itself as a leading smart manufacturing center has become even more attractive to investors.

 

With the onset of its digital transformation, supported by the government’s National Transformation Agenda Program, a bright future is paved for the eight sectors including manufacturing, under its priority. This program targets businesses, cooperatives, and business households to adopt advanced technologies and the necessary skill sets to match to stay competitive, according to Vietnam Briefing.

 

Among the recent achievements is a fast-developing digital economy: in 2023, Vietnam dominated the region’s digital boom, with a 19% growth that amounted to USD30 billion, according to KPMG. This is a significant milestone among many that Vietnam aims to accomplish through digitalization in the next five years.

 

The consumer packaged goods (CPG) industry is a key contributor to the local economy. In 2023, the CPG goods market was valued at USD52 billion, resulting from high consumer spending, and the growth of e-commerce and retail, according to Ken Research. The food and beverage market in particular is estimated to reach a value of from USD23.65 billion in 2023 to USD34.6 billion by 2030, noted For Insights Consultancy.

 

To understand how developments in digitalization are now playing out in the country’s CPG industry, Ringier surveyed senior and mid-level executives from local companies that cater to both domestic and international markets. The following are some of the results from the market study.

 

Consumer trends being monitored

 

 

Manufacturers acknowledge that they need to adopt to the almost radical shift in buyer behavior. It is fairly recent that consumers in Vietnam began exhibiting brand consciousness and interest in foreign brands. This trend is prompting 29% of surveyed executives to prioritize brand awareness and loyalty.

 

The trend is closely linked to the phenomenal growth of Vietnam’s e-commerce and social commerce, sustained by a population of tech-savvy consumers who seek novelty. Capitalizing on this growth, 24% of executives see e-commerce as highly significant to their business models.

 

In product development, 22% of executives are directing their efforts toward product functionality, with emphasis on high quality and value for money.

 

Key industry challenges

Low-tech processes, that is, traditional production methods, dominate many sectors of the industry. While they work, the potential to achieve even greater results lies of course in the adoption of today’s automation. About 16% of executives realize this, saying that flexible and predictable manufacturing (FPM) is their greatest challenge yet. Such capability will allow them to quickly meet evolving consumer demands. For example, FPM is designed to help streamline new product development – which 14% of respondents also consider a challenge. The agility provided by FPM also enables the creation of diverse product variants, and it can practically address other concerns related to cost control and time to market. It can hold the key to optimized and sustainable operations, inventory management, and other challenges revealed by Ringier’s survey.

 

Top 5 challenges faced by companies

• Flexible and predictable manufacturing
• Optimized, sustainable operation
• New product development
• Supply chain volatility
• Cost control

 

 

Functions prioritized for improvement

 

 

 

The survey also reveals the strategies for addressing the aforementioned key trends and challenges. When it comes to attaining their goals, about 1 in 4 (23.4% of respondents) said their focus is currently on product quality control, which can be carried out efficiently with the aid of high-tech equipment as opposed to only manual inspection, etc. These companies aim to enhance their brands consistent with acceptable standards. For 22.7%, urgent action is also needed in optimizing their production capability. Though only a far third in terms of urgency, online marketplace is an area that 10.4% of executives are exploring to grow their network.

 

 

 

 

Solutions being implemented

On the whole, the industry is moving forward alongside the digitalization trends in Vietnam. A key observation is the prudent shift toward software utilization.

 

More than half of respondents see Enterprise Resource Planning (ERP) as an indispensable tool for integrating and automating their business processes, while 14% said they are equipped with Advance Planning and Scheduling (APS) at the most basic.

 

Interestingly, 32% of companies have customized their storage and warehouse operations with Automated Material Handling Systems (AMHS) for the organized flow of raw materials and finished goods.

 

About 24% see the need to adopt machine-to-machine technology (M2M) with its potential to future-proof operations.

 

Robotics software is increasingly applied in parts of the production process by 20%, indicating the growing sophistication of the manufacturing industry. In the food sector for instance, collaborative robots are valuable in industrial kitchens, packaging and production lines. It is also worth mentioning that smart farming expects to drive the country’s agricultural sector.

 

While companies recognize their future in digital manufacturing, a remarkable 25% of those surveyed have yet to discover the benefits of these technologies to their operations.

 

 

 

 

Primary barriers for manufacturers

It is not uncommon to see a high number of CPG companies dependent on low-tech processes, particularly in Southeast Asia. Certain stages of production benefit from manual labor cost-wise, while other processes entail craftsmanship. That said, semi-automation seems to work well to their advantage.

 

But for companies lacking a well-defined digital transformation strategy, resistance arises from common concerns prevalent across various industries. One is the cost of implementation, according to 24.5% of respondents. A close 19.5% added complexity and time as setbacks.

 

About 15.6% are concerned with their factory size and capability, while the need for proper technical training and support is often perceived as another setback to digitalization.

 

A digital future

This survey merely begins to explore the impact of digitalization on Vietnam’s production manufacturing, and offers a glimpse of what’s to come.

 

As government lays out its plans in support of digital transformation, the CPG industry looks set to pick up the pace. But they require an agility that can only come from the adoption of digital software integration for efficiency. This agility can also push the boundaries for customer-focused innovation.

 

The changing consumer landscape – nearly dominated by the young working class – presents opportunities for manufacturers to strengthen their branding and create products that align with expectations for high quality and affordability. Manufacturers can also capitalize on the emerging trends in sustainability that appeal to younger generations seeking earth-friendly and health-conscious products.